Every valuation ratio answers one specific question. P/B ratio asks: how much are you paying for every rupee of net assets this company owns right now?
Book value is what's left when you subtract everything the company owes (total liabilities) from everything it owns (total assets). Divide the current share price by book value per share and you get the P/B ratio. A P/B of 3 means you're paying Rs 3 for every Rs 1 of net assets sitting on the balance sheet. Below 1 means you're technically paying less than what the company owns on paper.
Here is how the market is pricing five of India's biggest banks right now.
Source: Screener.in, consolidated figures. SBI earns almost the same return on equity as ICICI Bank, 15.4% against 15.9%, yet trades at barely 58% of ICICI's price-to-book multiple, the clearest live example of the discount investors still apply to government-owned banks.
The ratio sounds simple but the interpretation depends entirely on what kind of business you're looking at. Used in the right context, it reveals a lot. Used carelessly, it misleads completely.
Where P/B matters most: banking
P/B is most meaningful for businesses where assets are the core of the operation. Banks borrow money cheaply and lend it at higher rates. Their main asset is the loan book. Their main liability is deposits. The gap between the two is their net worth, which is what book value captures. So for a bank, P/B directly measures how much the market trusts that the loan book is actually worth what the accounts say.
HDFC Bank traded at between 3 and 3.9 times book value through the 2018 to 2022 period, averaging around 3.1x over those years (as of the respective fiscal years). That premium reflected consistent confidence: HDFC Bank's loans were clean, borrowers were paying, and the bank kept generating returns well above average year after year. After it absorbed HDFC Ltd in July 2023, its return on equity slipped toward 14% and the multiple followed, to about 1.9x by September 2026. A 3x P/B for a bank is the market saying the asset quality and earnings power are exceptional; when those returns dip, the multiple falls even if the bank keeps growing.
Compare that to government banks like Punjab National Bank and Canara Bank during the 2015 to 2018 NPA crisis. Both spent extended periods trading below 1x book. Markets were essentially repricing the stated asset values downward. When a significant portion of loans might not be repaid, the book value on paper overstates reality. A P/B below 1 is not automatically a bargain. It often signals that the assets themselves are impaired.
SBI's journey through this period is instructive. It dipped toward 0.7x book at the worst of the NPA crisis, then climbed back to about 1.5x as bad loans were recognised, provisioned for and resolved, and was at 1.48x in September 2026. The ratio moved with trust in asset quality, not with the overall market.
Where P/B tells you very little
For software companies, consumer platforms, and pharma businesses, P/B is largely irrelevant. Infosys's value is in its engineers, client relationships, intellectual property, and brand. None of those appear at market value on the balance sheet. A company whose main asset is talent will always look expensive on P/B regardless of whether it's a good investment or not.
Infosys trades at several times book and investors do not find that alarming because the ratio is not the right lens for the business. The question for Infosys is growth and margins, not asset values.
P/B alongside ROE
The ratio becomes genuinely powerful when read alongside return on equity. A business that consistently earns 25 percent or more on its equity deserves a high P/B, because those returns justify paying a premium over book.
Asian Paints is a clean example. It has maintained return on equity above 25 percent for years. Its P/B has reflected that by staying at a significant premium to book. Investors who looked at the high P/B and called it expensive missed the point: the company earns exceptional returns on what it owns, so paying more than book value is rational.
The pattern to watch for: high P/B with falling ROE is a warning sign. Low P/B with improving ROE can signal an inflection point. One ratio without the other gives you only half the picture.